Life-cycle costs & affordaibility for rural water services

Lifecycle cost & affordability for rural water services

Girma AbomaResearch & Influencing Coordinator, WaterAid Ethiopia

Background• 85% of Ethiopian population lives in the rural areas ; rural population

are thinly scattered threatening achievement of universal access by

2015

• Results from national WASH inventory has indicated that in 2012 rural

access to water is below 50% (more than 36 million people living in

the rural area are still lacking access to improved water sources)

• Besides significant percentage of rural water facilities are non-

functional mainly because of lack of adequate finance for O&M

• Rural water services are supposed to be managed by communities

but they still need strong backstopping support, which also require

proper financing of direct supports

• Hence, this study aims at creating understanding on the lifecycle

costs of rural water services that results in financial sustainability

Methodology – data collection• IRC lifecycle cost approach was used to develop tools

• Sampling

– Amhara & Oromiya regions were selected as they are: (1) WAE intervention regions; (2) cover wider geographical area

– 3 local governments per region (criteria – presence of HDW, SW & SoS) which totals to 6)

– 3 villages per local government – 1 users from HDW; 1 from SW & 1 from spring on spot (total of 18 villages)

– 50 households per village, a mix of different income groups, gender and age (900 HHs in total)

• Key informant interviews done by 2 WAE staffs in 6 local governments

• 3 local water office staffs engaged in conducting household survey

Methodology – assumptions• Only communal rural water sources are considered in this study including hand dug

well, shallow well & spring on spot (doesn’t include source with distributions & individual connections)

• Capital expenditures are synonymously used with initial costs of developing new rural water system (including hardware & software)

• Major maintenances expenditures are equivalently used with capital maintenance expenditures which includes costs of replacing major parts of rural water system; needs technical supports from water offices or zones

• O&MM expenditures are limited to salary of tap attendants, costs associated with committee meetings, purchase of minor parts like rods, U-seals, facets, etc (assumed to be financed by users) that can be easily done by community water technicians

• Financial roles & responsibilities as indicated in water policy are used in calculating financing gaps & affordability

• Standards specified in the national water quality guideline & universal access program are used in determining service levels

Service levelsQuantity Quality Accessibility /

crowdingReliability / Security

Dendi woreda (Oromia)

34% sub-standard 35% sub-standard Basic level

66% No Service 65% basic level

Dodota woreda (Oromia)

100% No Service 100% sub-standard Sub-standard Basic level

Hitossa woreda

(Oromia)

89% sub-standard 28% basic level Sub-standard 33% basic level

11% No Service 43% sub-standard 31% sub-standard

29% No service 36% No Service

S/Achefer woreda

(Amhara)

80% sub-standard 81% basic Basic level 74% basic level

20% No Service 18% sub-standard 25% sub-standard

1% No Service 1% No Service

Burie Zuria woreda

(Amhara)

35% sub-standard 30% basic Basic level 38% intermediate

65% No Service 36% sub-standard 61% basic

34% No Service 1% sub-standard

Dembia woreda

(Amhara)

97% sub-standard 76% basic Basic level 38% intermediate

3% No Service 23% sub-standard 60% basic

1% No Service 2% sub-standard

Initial costs to develop new communal water sources?

• Developing new communal water sources requires $21 per person, ranging from $15 to $25

• Cost variation was larger for shallow well mainly because of variation in geological formation, hydrology (depth), labor cost & distance

Dendi Dodota Hitossa S/Achefer Burie Zuria

Dembia$0

$5

$10

$15

$20

$25

$30

$35

$40

Initial cost ($ per person per technology)

Hand dug well Shallow well Spring on spot

Capital maintenance ($ per person per year)

Dendi Dodota Hitossa S. Achefer Burie Dembia$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

Hand dug well Shallow well Spring on spot

Expenditure needs for O&MM

Dendi Dodota Hitossa S/Achefer Burie Dembia$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

($per person per year)

Hand dug well shallow well spring on spot

Expenditures Needs for direct supports

Dendi Dodota Hitossa S. Achefer Burie Zuria Dembia$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

($ per person per year by technology option)

Hand dug well Shallow well Spring on spot

Total recurrent expenditure needs

• Total recurrent expenditure ranges from $3 to $7 per person

• Recurrent cost for SW was lower as it serves more people

• Recurrent costs for SoS is higher as it needs more labor hours (demolition) Dendi Dodota Hitossa S.Achefer Burie Dembia Average

$0

$1

$2

$3

$4

$5

$6

$7

$8

(In $ per person per technology)

Hand dug well Shallow well Spring on spot

Initial versus recurrent expenditure needs

Dendi Dodota Hitossa S. Achefer Burie Zuria Dembia Average$0

$1

$2

$3

$4

$5

$6

$7

$8

$1 $1 $1 $1 $1 $1 $1

$4$5 $5

$6$5 $6 $5

($ per person per year)

Initial cost Recurrent cost

Who pay for rural water services?Cost items Who pays? Capital expenditure Government & rural water service providers are expected to

finance 85% to 90% of developing new infrastructures Communities are required to pay 10% to 15% in kind & in cash

for construction of new water system

Operation & minor maintenance

According to the water policy communities are responsible to finance O&M costs of rural water system

Capital maintenance It is expected that rural tariff setting is based on the objective of

covering operation & maintenance including major ones But, this is not happening for communal water services for rural

areas; and government bodies are trying to fix by allocating some budget

Direct support As these include refreshment training for community water committees, regular monitoring of water facilities & providing backstopping support for community water committees it is expected to be financed by local governments / woredas

Indirect support Federal government / ministry of water and energy finances this cost

Financing gap for initial investments (78%)

Dendi Dodota Hitossa S/Achefer Burie Dembia$0

$5

$10

$15

$20

$25

$30

Financing gap for initial investments

Existing level Required

Pe

r p

ers

on

($

)

Financing gap for O&MM (83%)

Dendi Dodota Hitossa S.Achefer Burie Dembia average$0

$1

$2

$3

($ per person per year)

Existing level Required

Financing gap for recurrent expenditures (92%)

Dendi Dodota Hitossa S/Achefer Burie Dembia0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

(percentage of required recurrent expenditures)

Existing level Financial gap

Are these costs affordable?

• Survey results indicated that a typical HH spends $903 per year on major necessities (average spending on water being $2.5, which is 0.3%). Increasing this to the minimum requirement of $11.4 per family will push HH spending on water to 1.3%, which seems reasonable & affordable.

• But, results from individual interviews indicated that even the existing level of tariff is not affordable for a typically poor households, as this made them to use water from both protected & unprotected sources

• Under existing condition local governments allocate $0.3 (ETB5) per person as capital expenditure, accounting only for 23% of the requirement (reason - lack sufficient resources).

• Considering the existing resources available to local governments through block grants from regions, it is not realistic to conclude that financing of rural water services is affordable.

Conclusions

• Sustainability is about lasting benefits achieved from continuous use of services. Hence, planners should put a particular interest in planning for sustainable services with basic understanding of the lifecycle costs.

• Cabinet & budget standing committees are also required to have adequate understanding of the lifecycle costs to make informed budget decisions

• But, the reality under present conditions indicated that there is low awareness on the lifecycle cost of rural water services

• Existing financing levels for developing new rural water services are not realistic in terms of addressing actual expenditure needs – as it is reaching universal access to water may take additional 45 years; or requires local governments to allocate $368 per person continuously for 10 years).

Conclusions• Capital maintenances & direct support costs are not usually given sufficient

attention during budget decisions; & hence less financed

• Hence, under financing of recurrent expenditures will affect institutional capacity to address problems associated with sustainability of rural water services.

• Existing level of community financing for O&MM of rural water services was not found to be realist as this doesn’t match with the actual expenditure need.

• Tariff setting procedures are not based on recovering O&MM & this causes user communities to pay less against the need.

• If existing situations continuous more & more number of rural water system will be unsustainable, & hence more rural people will go back to use water from unprotected sources, which can most likely result in an outbreak of water born diseases

Recommendations - Government• Ministry/Bureau of water to take the lead in creating awareness on lifecycle

costs & start mainstreaming in program planning & budgeting. • Ministry/Bureau of water to play its roles to bring about greater clarity

over financing recurrent expenditures for rural water system; put in place proper mechanisms for setting realistic water tariffs.

• Ministry/Bureau to play its roles in ensuring better recording & reporting of financial expenditures on water services including community contributions & water tariffs

• Future research to look into financial sustainability of water sources with distributions including spring gravity schemes & deep wells

• M/BoFED to mainstream lifecycle expenditure needs for rural water services in the criteria informing making budget decisions.

• Budget standing committees & cabinet should be aware of evidences on lifecycle costs for rural water services during budget decisions.

Recommendations – Donors, CSOs, communities • Donors agencies to prioritize financing recurrent expenditures for rural

water services so as to ensure sustainability

• Civil societies & donor partners to promote mainstreaming of lifecycle cost approaches in planning and programming of rural water services

• Civil societies to play its roles in disseminating the concepts of lifecycle cost approaches in the areas they have active water supply projects

• Civil society organizations to use evidences of expenditure needs in allocating budget to rural water supply projects & create similar understanding among other stakeholders

• Water committees to create understanding among users on their financial roles & responsibilities in sustaining rural water services.

• Every user should be aware on the minimum amount required for them to pay so as to finance O&MM of communal water sources.